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Win-Win for Workers and Employers

Kristin Dziczek is the director of the Labor and Industry Group at the Center for Automotive Research.

Updated September 18, 2011, 7:00 PM

In 2006, the Detroit Three’s average hourly labor costs were $25 to $30 higher than costs were for international automakers with plants in the U.S. To address this competitive disadvantage, the U.A.W. and the companies worked to lower labor costs in 2007 contracts — most notably through the institution of the independent trust for retiree health care and the second-tier wage. Together, these provisions have effectively eliminated the labor cost gap.

Two-tier wages have led companies to hire — and added to the ranks of the U.A.W.

Lower second-tier wages and benefits enable the companies to hire workers at 60 percent of the cost of incumbent workers. Not only are second-tier wages and benefits lower, but also the post-employment benefits are pay-as-you-go: there are no future liabilities for the company. This represents a fundamental change in the bargain for automotive work, effectively pushing the “reset” button on legacy costs that had financially crippled the companies in recent years. The fact that second-tier automotive workers have a pathway to earning the top-tier wage differentiates this approach from past two-tier wage systems.

Two-tier wages have driven the companies to hire and bring in more work that was previously done by suppliers — and added to the ranks of the U.A.W. First or second tier, automotive work is demanding. The Bureau of Labor Statistics’ job rating for automotive manufacturing shows that the industry’s higher rates of pay are commensurate with the difficulty of the job. The companies have not changed their hiring requirements for these entry-level positions. They expect that the same quality work force will be available at half the wage. That may be possible in today’s slack labor market, but it will not forever remain so. Wages for the second-tier workers will almost certainly have to climb to continue to attract and retain workers in this industry.

Henry Ford knew that it made good sense to pay workers enough to buy the cars they build, and this is as true today as ever.